Babbel dumps freemium for language learning: "it just doesn't work"

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[Germany] The new version of Babbel, the language learning startup, is released today, but there’s a sting in the tail for the existing 500,000 users who thought it was a Freemium service: they will now all have to pay to use it. “Babbel is now a paid service. Freemium doesn’t work for us,” confirms managing director Markus Witte. Now only the first part of any given course can be taken for free, as a trial demo. Full access now costs between $6.65 and $11.95 per month.

Babbel won investment from Kizoo AG and VC Fonds Berlin in the summer of 2008 and then in 2009 secured 1 million Euros financing from the Berlin ProFIT program (which draws funds from the European Union’s EDRF). The Babbel team currently consists of thirty-five full-time and freelance employees.

That does of course mean the site will now be ad-free. “The users are our customers, not the ad providers,” says Witte. “We actually tried to launch Babbel 2.0 as a partly ad-sponsored service but it just doesn’t work.”

The company behind Babbel, Lesson Nine, has revamped the learning material and technology of the site to reflect this new model. As well as the Basic and Advanced Vocabulary courses, the new site has new courses and exercises. Much of the material is now licensed from well-known publishers or produced by teachers and language experts. Babbel hopes this increase in quality materials will mean its users stay on board, rather than skipping back to free language sites again.

Users can can continue using their vocab and the community features on Babbel as they did before, but this now becomes the demo version.

It’s interesting that Babbel has made this move to monetise. Assuming they end up with a possible 10 per cent subscribing at the base rate they’ll get $332,500 a month, which is not amazing for the size of team they have. We’ll be watching to see what happens next.

I’m not convinced that Premium (or even Freemium) works all that well for most consumer products. Sure, there’s a few home runs, but on the whole, the numbers are just very hard to squeeze any money out of.

10% is a very high conversion rate. Typically, any Freemium (or plain Premium) product will have somewhere around 1% conversion rate. Let’s say you do really well and bring in 100’000 new potential users every single month (quite an achievement for any website, I’d say). With a 1% conversion rate, that’s 1’000 new paying users a month.

Consumers, however, typically aren’t very keen on paying much more than a few dollars a month (when they’re willing to pay a subscription at all, which is rarely) – let’s say they’re ok with paying $60 a year. That’s $5 a month.

So with that insanely high amount of incoming users, you’ll have a cumulative income adding $5k a month. That’s assuming there’s no attrition (good luck with that). Not much to celebrate. At that rate, assuming no attrition, it would take you 20 months before you even make $100k/m. With attrition, it’s fair to assume that consumers won’t stay for even that long, so actually you’ll stabilise around $25-50k/m. This is not too shabby for a lifestyle business, but if you’ve taken €1m of funding, that’s not really an option. Then again, the funding wasn’t from VCs, so maybe that’s ok.

There are always exceptions, things that hit a sweet spot and make crazy amounts of money from consumers. But those are very few and very far between. Can you think of any?

http://www.vidschool.com Sean

People have tried to convince me to turn VidSchool into a freemium model but I’ve seen how hard it is to make a free or freemium model work before with Lookandtaste.com.

It’s better to know early on if your visitors are unwilling to pay you for your service than to waste your time providing free services, pay all the costs of providing that free service and believe that traffic itself will cover those costs in the end.

I think this will be a positive move for Babbel and the founders whether it works or not cos they’ll save themselves time if it doesn’t.

http://www.edulang.com Michel Nizon

Based on my own experience, the transformation rate in the language learning market is more 1 paid customers for 1000 free content subscribers. So their potential market is 500 paid customers or a maximum monthly turn over of 5975 usd. That will not be enough to pay for their overhead.

http://www.kirstenwinkler.com Kirsten Winkler

I think the key lies in “people, who are serious about learning a language”. The freemium models are more social networking sites with an attached language learning application. So in most cases the center of interest is not the learning, it is just the chatting with other members.
Rosetta Stone seems to work fairly well based on this model and Babbel won’t charge as much as them. That is where my concern is: if you charge, why not charging at least 9€ per month? Hence I think the step itself is right but from the pricing not consequent enough.

Andrew

I agree – Rosetta Stone Totale works out to over $100/month. Granted it does include online tutoring sessions – but even if you value those at $50, they are still not even in the same ballpark. I understand undercutting the established and proven competitor, but if they think their product works, it’s worth more than what they are planning on charging.

http://blog.alexguest.me Alex Guest

1% conversion sounds about right.

They’re probably earning $1 per free user per month from ads.

So, $5000 revenue would mean about 10x current earnings.

JL

Any other free language learning sites out there then?

LiveMocha is one that comes to mind here, seems to still offer free courses.

backwoods boy

well, http://speak.econtrader.com offers 10 languages (well count it as 9 if you dont include english) its interactive too with some audio dictionaries on some of the languages. Its free right now i dont know if they are going to charge too but seems like they are up into something else like stocks as their primary thing or something like that kind.

jan

rosettta stone has a service for 1000 dollar per year. i guess they are targeting the corporate sector with it. i don’t have any information about their success with this offer.

http://www.busuu.com Bernhard

Indeed an interesting move. We from http://www.busuu.com (currently second biggest player in Europe after babbel) are obviously more than happy to welcome those users who still want to enjoy free online language learning.

Our strategy has always been (and will be) based on a freemium model. But obviously you cannot finance a community like this (we currently have more than 250,000 users) with advertisement revenues.

We are currently very happy with our subscription rate (our premium membership costs 9,99 EUR/month) and we believe that people are prepared to pay once they see the added value.

But we also notice that if you want to establish a clear community feeling (with live video-chat, peer to peer text corrections etc..) you have to have a critical mass of (free) users which contribute to the system. Having only paid users will eliminate the community learning and will turn the site into a pure individual learning tool (which some people might prefer as well).

Definitely interesting to see where this new online language learning market will develop during the next years.

All the best for the Babbel Team which have definitely done a great job so far!

Bernhard
Co-Founder of busuu.com

http://www.freemium.org/ Peter

What about vertical integration ?

As an independent online service, I can see way they are having a hard time making the freemium work. It also seems like they would have a hard time with the premium only version.

Why not join forces with one of the big international language learning brands ? This could push the attention from free online tools into conversion towards physical language training.

In this way it be easier to tap into those really willing to pay. The serious language learners and the businesses clients.

[…] this decision that will of course heat up some discussions between the free users of the platform. First reactions of other companies like VidSchool and busuu on TechCrunch Europe blog are not what one would call […]

Roshan Shrestha

Unless I am mistaken, they do not offer any Asian languages like Mandarin and Japanese, only some European languages.

If they are to target business users, they need to offer Mandarin and Japanese. I would not mind paying to learn Mandarin.

Free is the poor man’s promotion program. As the person behind LingQ.com, I sympathize with Babbel and wish them well. I congratulate them on their funding. Maybe that helps them cut out the free. We do not have that option.

Furthermore, our learning methodology at LingQ is quite different from that of Babbel. We do not have pictures, drills, and we downplay the role of spaced repetition systems for vocabulary. We emphasize learning from interesting content, most of which we receive free of charge from our members or from other sources on the web. So we cannot eliminate the free, although we will be differentiating free member benefits from paying member benefits more in the future.

Steve Kaufmann

http://www.shv.me Shiv

I don’t blame them, with only 500k registered users you can’t make much money from freemium. If their service is good, people will pay for it.

http://www.lingq.com Steve Kaufmann

From LingQ’s perspective all people developing online learning are colleagues. We need to persuade the multitudes that our offerings are worth a lot, even if they cost than classrooms. We need to persuade learners and the public funders of language learning.

By the way, here is a promo video for LingQ.com, one of two that we are looking at.

Whatever the business model, we wish Babbel (both the staff and users) all the luck!

http://taeglich.chinesisch-trainer.de/index.php?alle=2 Hans-Peter

Babbel is courageous. There is so many free learning stuff in the internet, so their new concept may not work. Maybe only for some people who want just learn without a lot of internet searching…
Just have a look at Google web applications – they are free and successful. Have a look at the German news market like WELT, SPIEGEL, FOCUS. The newspaper market is declining, and nobody wants to pay for news on the internet.
So why should one pay for language learning content?
I just setup an Babbel account and did the one, free lesson. My conclusion: the lesson was far too easy (is there some level test?), and I was not able to save the learned vocabulary (no copy/past possible). Sorry, but the test did not convince me to become a paying Babbel member.

http://www.chinese-course.com/ Oliver Antosch

Hey Peter, if you want saved vocab lists try my site.

As for Babbel going paid, I think they will be fine and it will be good for the whole industry.

Language sites are not like search engines where “free” works. On Google people are looking for a solution, so they are open for ads. On language sites they already have found what they were looking for, so ads are more or less ignored.